This paper presents a new approach to estimation and inference in panel data models with unobserved common factors possibly correlated with exogenously given individual-specific regressors and/or the observed common effects. The basic idea behind the proposed estimation procedure is to filter...

This paper presents a new approach to estimation and inference in panel data models with a multifactor error structure where the unobserved common factors are (possibly) correlated with exogenously given individual-specific regressors, and the factor loadings differ over the cross section units....